In last month’s article, I examined the cost and effect of using match play and “first card is an Ace” coupons. This month, I will continue on with promotion chips, both single decision and multiple decision.
Although their general purpose is similar, there is a huge mathematical difference between the two options. The single-decision chip plays very similarly to the match-play coupon, as it is paid based on its face value when it wins. The multiple-decision chip plays more like a regular casino value chip, except the multiple-decision, as well as single-decision, chips cannot be exchanged at any value for cash or casino value chips. Multiple-play promotional chips must be played until they lose. This is also known as “washing.” The customer plays the promotional chips, pocketing the casino value chips that are won, and continues until all of the promotional chips have been lost to the casino. The customer will then cash out the casino value chips, representing his return from the promotion.
The casino’s cost will differ greatly between these two promotional options. The single-decision chips cost the casino one half their face value minus the house advantage of the game on which they are wagered. Multiple decision chips cost the casino 100 percent of their face value minus the chosen game’s house advantage. In too many cases, the casino executive is unaware of the exact cost and incurs expenses greater than the chip promotion could possibly generate.
In addition, promotional chips are not used strictly for promoting play or as game starters like coupons are. Promotional chips are also used in player reinvestment programs to reward table game customers for their amount of time playing on the games or as payback on loss reimbursements.
Single-Decision Promotional Chips
A promotional chip is considered any chip with a printed value on its face that cannot be cashed out by the customer at the cage. In addition, they cannot be cashed out by any employee or redeemed for casino value chips across the table. These chips are also known as “non-negotiable chips.” The customer is required to play the chips until they are taken or lost to the dealer during a wagering decision.
Single-decision chips are wagered on the gaming table by themselves, without the requirement of additional casino value chips. Since they are known as “single-decision” chips, they are wagered only once; the chips are taken by the dealer when they lose and when they are paid with a casino valued chip. The chips will continue to play only if there is a “push” hand; otherwise, win or lose, the promotional chips are taken by the dealer.
These promotional chips are normally used in conjunction with a player reward system. The marketing department may opt to reward customers for accumulating a certain amount of theoretical win, or hours played, by issuing them single-decision “promo” chips. For instance, if a rated live game customer has gambled long enough to accumulate a theoretical win of $5,000, the casino may reward the player by issuing him or her $1,000 in single-decision promotional chips (usually in $25 non-negotiable chip increments). These chips are then played across the table by the customer until they are exhausted. The non-negotiable aspect of the promotional chips guarantees that the customer will play them through at least one time before cashing out the residual. If marketing rewards the qualifying customers with cash or casino value chips, there is no guarantee that the player will bet any of his or her “reinvestment” money. It needs to be pointed out that single-decision chips are also used similarly to the match play coupon as occasional game starts as well as reinvestment chips.
The mathematics of these chips is similar to match play coupons, but because the promotion is conducted using a physical chip instead of a piece of paper, the procedure for accounting for the chips, and their affect on the table game hold percentage, will slightly differ. Using the previous mathematical approach conducted with the match play coupons, a similar cost value can be easily computed (A house advantage of 1.2 percent is used in the following example.):
Player Wins = [0.5 – (0.012/2)] X $5 = [0.5 – 0.006] X $5 = 0.494 X $5 = $2.47
Net Cost from a $5 Single-Decision Chip = -$2.47
If the principle use of the single-decision chip is the same as the match play coupon, why is the cost for the $5 single-decision promotion chip slightly greater? This is due to the fact that the chip plays alone, while the coupon involves the use of additional casino chips that are subject to the house’s mathematical edge.
In this promotional chip situation, the use of the chip is different from the coupon. The issuance of the match play coupon is not predicated on the customer’s previous playing history but is a cost associated with enticing a person to gamble on a table game. In most cases, the promotional chip is used to reward a customer for previous play, and in essence, the cost has already been paid for by the customer. The $2.47 is the residual cost associated with the face-value reward to the customer of $5. In other words, the customer perceives a reinvestment reward by the casino of $5 but, realistically, is receiving a “post-play” decision amount of slightly less than half the face value.
Statistically, the effect on the table game hold percentage and win is similar to the match play coupon, depending on how the single decision promotional chips taken across the table by the dealer are accounted for by management.
Scenario 1: The chips are dropped in the box, but not treated as drop.
The most common process used in this scenario has the dealer dropping the “played” chips into the drop box. The promotional chips are not counted as drop but are recorded as “pieces,” similar to how coupons are recorded. In this situation, the theoretical loss created by the chips through play affects the win and also the hold percentage (see Table 1).
Scenario 2: The chips are transferred back to the cage as “pieces.”
There exists a second method for handling these chips. The promotional chips are not dropped down into the drop box but transferred back to the casino cage as “pieces.” The promotional chips are not credited back for a monetary amount but for a number representing the amount of total chips involved in the transfer. If $5,000 in promotional chips were transferred off the table and to the casino cage, it would be recorded as 200 individual $25 promotional chips. The 200 chips are then entered back into an inventory of promotional chips with a face value of $25. How does this method of accountability affect the table games’ win and hold percentage? The effect is the same as Scenario 1, as seen in Table 1.
Using either Scenario 1 or 2, the cost in win and the hold percentage decrease remains the same. The wise casino executive needs to keep in mind that the widespread use of single-decision promotionals as part of the player reward program will lower the cost of the player reinvestment for the casino but, at the same time, will reduce the table game’s win and hold percentage, as seen in Table 1, by as much as 2.5 percentage points.
Multiple-Decision Promotional Chips
Multiple-decision promotional chips are known throughout the gaming industry as “dead chips.” This macabre name is derived from the fact that the chips are very similar to casino value chips; the only difference is that the customer can never cash them out at the cage or exchange them for casino value chips at the tables. Casinos that offer promotions using these chips will sometimes refer to their wagering as “washing” the chips. Unlike single-decision promotional chips, these chips are not taken after every decision but are played until lost. Some chips are lost after one play, while others could play as many as 12 or more times before they are won by the house. The common accepted average for times played is a little less than two times (1.98 times), and this factor becomes important when estimating the actual cost of these chips.
The mathematics for determining cost is simple. We subtract the theoretical win of the play of these chips from their face value. For instance, if a player were given $1,000 in multiple-decision chips as an incentive or past play reward, the cost would be:
House Wins = ($1,000 X 1.98) X 1.2% = $1,980 X 1.2% = $23.76
Net Cost of Issuing $1,000 in Multi-decision Chips = $1,000 – $23.76 = $976.24
As you can see, the cost from multiple-decision promotional chips is much greater than single-decision chips—using a $5 multi-decision chip, the cost will be $4.88 per chip, as compared to $2.47 from the single-decision version.
Sometimes these chips are used in conjunction with a “buy-in” program. When a customer buys in for $1,000, the casino immediately upon purchase of the chips calculates the player’s worth, or theoretical win, at $23.76. This method is extremely effective as a player tracking system for Asian customers, who are characteristically difficult to evaluate. Instead of worrying about the accuracy of average bet, hands played and win/loss, all the casino executive has to track is the amount of non-negotiable, multi-decision chip buy-ins. If the player buys in for $10,000 during the course of his or her play, the play is worth 2.38 percent of the total buy-in, or $237.60 in theoretical win. The minute the customer buys in for the dead chips using this system, the casino knows the exact value of his or her theoretical win and can accurately calculate the customer’s reinvestment program (comps, airfare, rebates, etc.) value.
There are several caveats to this program as well; however, determining the effect of using multiple-decision chips on the games hold percentage, especially if this program is used to any great extent, can become quite the task. This is due to the different methods the casino can use to account for the non-negotiable chips that are played and the nature of the chips playing across the table, or churning, a minimal number of times. With that said, there are two widely used methods of accounting for multiple-decision chips.
Scenario 1: Dropping the chips and recording them as drop.
In this scenario the multiple-play, non-negotiable chips are bought at the casino cage and taken by the player to the game of his or her choice. Once the non-negotiable chips are played to exhaustion, the dealer drops them into the drop box. The chips are counted by the count-room team and treated like cash drop. The logic behind this procedure is based on the promotional chip cash buy-in at the cage. Management believes they need to show some effect for the cash that, under normal conditions, would have been dropped in the box. Without treating the lost promotional chips as drop, the casino value chips taken by the player during the “wash” would be considered as gaming loss, greatly decreasing the table game win. Using this method of non-negotiable accountability gives management a truer drop and win figure to work with.
Using a truer drop figure in conjunction with the multiple-decision chips and the chip “washing” situation will bring the game’s hold percentage figure down. This is due to the churn, or number of times the chips are played. In most situations, casino value chips purchased for cash at the table are played over and over again, usually 10 to 12 times. The multiple-play, non-negotiable chips are played less than twice. The minimal churning affect is illustrated in Table 2. The limited number of times the multiple-decision chips are churned reduces the hold percentage in relationship to the non-negotiable chip drop.
The minimal churn created by the players washing the non-negotiable chips has reduced the hold percentage in the example in Table 2 by approximately 1.22 percent.
Scenario 2: The non-negotiable chips are purchased at the table.
Instead of purchasing the chips at the casino cage, the players purchase the chips at the table. In this situation, the table chip tray contains both non-negotiable chips and casino value chips. The player will buy in at the table with cash or casino value chips. Once he has purchased the promotional chips, he will play them until exhaustion. In some cases, the player will be allowed to buy in for additional non-negotiable chips a second time and will not have to leave the table. He will use the casino value chips he has won and/or additional cash to repurchase the multiple-play chips. Mathematically, this is very similar to Scenario 1 since the dropped promotional chips and the cash buy-in represent the same value.
It’s important for the casino executive to keep two points in mind when working with promotional chips: (1) the cost of the promotional chips; and (2) the effect promotional chips have on table game statistics. If you, as an executive, decide to implement a promotional chip or coupon promotion and haven’t determined the revenue cost to gaming “win,” the scope of promotional chip use, and/or the effect of the promotion on your drop and hold percentage, you may be in for a rude awakening once the promotion is in full swing.